What should I know about opening a business bank account?
Why should I open a separate bank account for my business?
One of the points of forming a business entity (ie. LLC or corporation) is so that you have a corporate legal shield that protects your personal assets should someone try to sue you or collect money from you personally (ie. get your car, house, or personal funds) for a business related thing.
To formalize your business, you need to do more than just form a business entity with the Secretary of State's office. You should also keep personal and business bank accounts separate so that your records indicate that there’s you as an individual and “you” as a separate legal business entity. The goal is to keep all business accounts and records separate from any personal accounts under your name.
There are times where people form an LLC or corporation but do not use it like a business. As a result, someone suing you may ask a court to “pierce the corporate veil.” This means that even though you have formed an LLC or corporation and have a corporate legal shield, the judge decides that your personal assets are also available because you didn’t do the necessary additional things related to formation.
These additional things include
opening a business bank account that separates personal and business funds (a way to avoid “commingling of funds”, which is legally looked-down-upon);
having contracts that go from business to client (not from you as an individual to the client);
having and maintaining a business insurance policy.
I will talk a little more about number 1 here: business bank accounts.
What do I need in order to open a business bank account?
To open a business bank account, you will want to first form you LLC or corporation. You can do this yourself or -- shameless plug, you can hire our firm to by first scheduling a no cost consult here: www.rationalunicorn.com/contact We provide an a la carte menu of things you may need based on where you are with your business. These potential projects may include specific contracts or intellectual property protection applications. We offer small business entity formation packages which include the LLC filing with the state, drafting the operating agreement, and being your registered agent address listed (if forming in Oregon). We don’t just take a client’s money and do the project. We are happy and eager to answer any related formation questions you may have.
Once your LLC or corporation has been approved by the Secretary of State, you will want to get an EIN. An EIN is an employer identification number. Even though it may just be you and you may not yet have employees, an EIN is used by businesses like a social security number. Getting one is free and only takes about 10 minutes on the IRS site. You will need a social security number to apply to get one, but the ultimate goal is that you’ll have an identification number that is connected to your business vs. you individually. This is the identification number you can use to open your business bank account. Here’s the online application for EIN: https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online
To apply for a business bank account, you generally will need the following:
Your LLC registration information showing that the state has approved your application and your business is now on the state business registry. These are called the articles of incorporation or articles of organization (depending on entity type).
Your EIN as described above which can be generated on a pdf and saved or printed on the IRS site upon completing the application.
An operating agreement or partnership operating agreement (if the business has more than one owner).
Banks also usually require ID such as a driver’s license or passport. Some also require mail to prove that you are at an address in the state or that you will be at the address that you are tying to the business. Some have a minimum account balance requirement (ie. $100) and some don’t.
My advice is to make sure you have all of these prepared and then to call your bank to make sure they don’t have any additional special requirements besides these. Once you open your business bank account, remember to treat it like a business account. Meaning, collect all business payments to the account by tying your client payment methods to it. If you spend money for a business expense, use your business debit card. And if you are taking an owner distribution to pay yourself, make out a check from the business bank account or do a transfer from the business bank account to your personal account. Please ask a CPA or tax professional about this. You may want to discuss S Corp status or other accounting considerations with your accountant, too. We only advise on the legal part of the entity, not the tax considerations. If you need someone for accounting and taxes, take a look at our Referrals page.
Getting a business bank account is one of the many pieces of business formation but doing it is highly recommended in order to maximize both the impression and actuality that your personal finances and liabilities are separate from your business ones.
How to Choose a Bank
We have some banks listed on our referral list here.
We prefer local banks, credit unions, or banks that are Benefit Companies and donate funds to the local communities where their branches are. Banking may be an important part of your small business so make sure you choose a bank and a team that are patient, kind, and there for your small business.